Tuesday, August 23, 2016

If you are or intend to be a 501(c)(4) organization, have
not previously sought or gotten an IRS Letter of Determination, and have never
filed an information return in the 990 series, this form is a new requirement
for you and for what the IRS calls local associations of employees.

No other 501 C-section entity needs to be concerned with
this new filing requirement.

However, failure to comply now can cost a qualifying organization
and its key officers penalties totaling $5,000, assessed at $20 per day.

The IRS
broadly defines C4's as social welfare organizations or associations
operating in the interests of the common public good, without intending to or
accruing profit to the members, as stated here:

Reg. 1.
501(c)(4)-1(a)(2)(i) provides that:

[A]n organization is
operated exclusively for the promotion of social welfare if it is primarily
engaged in promoting in some way the common good and general welfare of the
community.

The IRS offers further examples here,
but note the use of the word "community." This differs from a C3
entity in that it does not support one identifiable group, i.e. low-income
children or unwed mothers, while excluding others.

However, "community" does not have to mean a whole
city or town. For instance a local homeowners association's "community"
might be just the entire group of homeowners it represents.

Thus, a local improvement district might be a
501(c)(4) if it seeks to improve city parks or establish a lending library. A
rural homeowners association that seeks
to buy snow removal equipment to be made available to the entire neighborhood
could also qualify.

The main attraction for people seeking to form a C4 is that
these organizations may engage in some forms of general lobbying or political
discourse, where a 501(c)(3) cannot.

Note that the new Form
8976 is NOT equivalent to a Letter of Determination. It is, as it states,
simply a notice of intent. There is a
$50 filing fee attached to it.

The IRS apparently believes that there are a lot of
organizations operating as C4 entities that have never registered as such but
are still engaging in prohibited political activities.

The problem with that is all of the money donated to or
collected by unregistered or disqualified entities is taxable as ordinary
business income. There may also be
criminal penalties if the money was collected and/or spent under false
pretenses.

If you have any other questions or are trying to determine
what type of charitable identity your new organization should apply for, contact me and we can discuss it.

Another that is based on volunteer staffed community
outreach regarding education might need no more than a phone and a website.

Recently I had a nonprofit that wanted a press release
written to tell the community that they were shutting down. Their main source
of income was fees for services, but they simply didn't have enough clients to
cover their operating costs.

One fact I learned
was that they had kept overhead to 7.5% of donations. There was no set budget
for non-program costs.

One of the casualties of that approach was that they did not
advertise beyond having a website.

I did the press release and two weeks later, I got another
call. Could I do a press release
retracting the closing?

When the first press release ran, they got over 70 calls
wanting their services.

Up to that point, it seems hardly anyone knew they existed.

I'm happy to report that they remained in business, and have
since created a budget for marketing.

Don't get hung up on meeting some artificial figure that
doesn't work for your business or charity.